9911796707
TMI Blog2018 (11) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. "On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in allowing the deduction u/s 35(2 AB) without appreciating that the assessee was not approved by the prescribed authority u/s 35(2AB) for AY 2012- 13" 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance u/s 14A r.w. Rule 8D to the exempt income without appreciating that there is no such provision in the IT Act, 1961 for doing so in the relevant year." 3. For these and other ground that may be urged at the time of hearing, the decision of the C1T(A) may be set aside and that of the AO restored." 2. The brief facts of the case are that the assessee company, which is engaged in the business of manufacturing sugar, chemical distilleries and generation of electricity, filed its return of income for AY 2012-13 declaring total income at Nil under normal provisions of the Act and ₹ 13,45,63,959 u/s 115JB of the Act. The case was selected for scrutiny and the assessment was completed u/s 143(3) on 29-03-2015 determining the total income at Rs.Nil after setting off brought forward business loss by mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 It is already noted in the Assessment Order that the Form No. 3CM was issued on 14.01.2013 and was available at the time of assessment. Further, the unit was a recognized unit and the expenses were genuine. There is no restriction in sec 35(2AB) of the I T Act for applying any cut off to allow expenses only after the date Form No. sCM is issued. This view is fortified by the decision of the Delhi High Court in SandanVikas (India) Ltd. 335 ITR 117 and Gujarat High Court in Claris Lifesciences Ltd. 326 ITR 251. 7.7 The Hon'ble Delhi High Court in SandanVikas (India) Ltd. 335 ITR 117 has observed that: "Para 2 The provision further states that i?i order to claim this weighted deduction, it is to be certified by the Competent Authority that the assessee had undertaken research and development activity. The competent authority in this behalf is Department of Scientific & Industrial Research (DSIR). The assessee had approached DSIR vide application dated loth January, 2005. The DSIR vide its letter dated 2^vd February, 2006 granted recognition of the in-house R&D facilities of the assessee company and also granted approval for the expenses incurred by the company on in-hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered Rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by Section 3$(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture by the assessee for development of such facility; (Hi) approval of the facility by the prescribed authority, which is "DSIR"; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. The provisions nowhere suggest or imply that "R & D" facility is to be approved from a particular date and in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. sCM and come to the conclusion that a plain and harmonious rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend income for ₹ 3,945/- in the ottal income. In the computation of income the appellant has made a disallowance of ₹ 10,000/- but the same is not as per the provisions of section 14A r.w.r. 8D of the IT Rules. After considering the submission of the appellant the AO has recomputed the disallowance u/r 8D(2)(ii) to the extent of ₹ 3o,37,745/- and u/r 8D(2)(iii) to th extent of Rs. i,7i,5i3/-. Thus the total disallowance made by the AO u/s 14A r.w.r. 8D(2)(ii) is worked out to ₹ 32,09,258/-. Since the appellant has itself disallowed ₹ 10,000/-, therefore, balance amount of ₹ 31,99,2587- is disallowed and added back to the income of the appellant. 8.1 On the other hand the appellant submitted that the assessee company has disallowed ₹ 10,000/- u/s 14A of the IT Act considering that the tax free dividend income is only ₹ 3,945/-. The AO has worked out the disallowance u/s 14A r.w.r. 8D(a)(ii) at ₹ 32,09,258/-. The appellant received dividend income to the extent of ₹ 3,945/- and suo motto made disallowance of ₹ 10,000/-, whereas the AO has computed as per Rule 8D(2)(ii) of the IT Rules, 1962. It is submitted that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction u/s 35(2AB) of the Act. 6. It is the contention of the assessee that its R&D facility had been approved by the competent authority since AY 2009-10 and further approval is only renewal of already existing approval granted by the competent authority which has been given from the date of original approval, therefore, the AO was erred in holding that the assessee is not approved by the competent authority for the impugned assessment year. The assessee further submitted that once the R&D facility had been approved by the competent authority, there is no cut off date is prescribed to be eligible for weighted deduction in respect of expenditure incurred towards research and development activities. Therefore, there is no merit in the argument of the AO that there is no approval available for the impugned assessment year. The assessee, referring to the application filed for approval in form 3CK dated 19-11-2012 addressed to Secretary, Department of Scientific & Industrial Research, Government of India and also copy of approval granted in form 3CM dated 14-01-2013 submitted that although the letter specifically stated that the approval has been granted from 01-04-2012, the fact r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the provisions of section 35(2AB). What is required to be seen is whether approval has been granted by the competent authority or not. Once approval has been granted u/s 35(2AB), then the AO is having no power to question such approval regarding date of approval and period of approval. 8. Having heard both sides, we do not find any merit in the arguments of the assessee for the reason that to get the benefit of deduction u/s 35(2AB), the facility must be approved by the competent authority after fully satisfying with the conditions specified under the said section. Rule 6 of I.T. Rules, 1962 prescribed the procedure for approval of R&D facility as per which assessee needs to file an application in Form 3CK alongwith the necessary details and the competent authority, after satisfying with the conditions prescribed under the Rule, shall issue Form 3CM approving the R&D facility. The Rule further prescribes that the competent authority shall submit its report in relation to the approval of R&D facility in Form 3CL to the Director General Income Tax (Exemption) within a prescribed time. Unless the R&D facility is approved by the competent authority, the assessee shall not be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuineness of such expenditure. In this case, on perusal of details, we find that the AO has never doubted the expenditure incurred by the assessee towards its R&D activities. The AO also not doubted the genuineness of such expenditure. Therefore, we are of the considered view that once the assessee has proved expenses with a necessary evidence, there is no reason for the AO to disallow such expenditure u/s 37(1) of the Act. Hence, we direct the AO to allow revenue expenditure incurred by the assessee to the extent of ₹ 217,26,968/- u/s 37(1) of the Income Tax Act, 1961. Insofar as capital expenditure, we direct the AO to verify the nature of expenditure incurred and allow depreciation as per law. 11. The next issue that came up for our consideration is disallowance of expenses incurred in relation to exempt income. During the year under consideration, the assessee has earned dividend income of ₹ 3,945 which was claimed as exempt u/s 10(34) of the Income-tax Act, 1961. The assessee also made suo moto disallowance of ₹ 10,000 towards expenditure incurred in relation to exempt income. The AO has determined disallowance of ₹ 32,09,258 u/r 8D(2)(ii) & 8D(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
